Bugbear of Chinese imports

THERE IS a growing perception that with the removal of quantitative restrictions, a large array of consumer goods from China have flooded the Indian market. It is feared that the easy availability of these goods at relatively lower prices will adversely affect the local industry, though consumers and traders may be happy. It is also felt that the situation is worsening due to the alleged dumping of goods below cost and rising illegal imports through Indo-Nepal and Indo-Myanmar borders.

Import-export trends

The veracity of these perceptions can be ascertained by analysing trends in imports and exports of Chinese goods and verifying evidence about any increase in the smuggling activity. An analysis of imports from China for the period 1995-96 to 2000-01 reveals three discernible trends, namely, the number of items of import is steadily on the increase, the volume is expanding and more importantly, the composition of goods in the import basket is undergoing a steady change. The number of items of import during 1995-96 to 1999-2000 has gone up from 2,809 to over 3,606 and the value has increased from Rs. 2,716 crores to Rs. 6,706 crores. Imports have been particularly buoyant during the last two years with an average growth rate of about 25 per cent per annum. Major items of import include chemicals and chemical products, machinery, machine tools, electronic goods and mineral ores which together account for about 75 per cent of imports. However, electronic goods account for half of the imports of manufactured goods. Besides, their share in overall imports has gone up from 6.25 per cent in 1995-96 to 16.5 per cent in 2000- 01. Likewise, the share of light consumer goods is also on the rise.

Against this background, it is interesting to note that Indian exports to China are growing at a much faster pace. In 2000-01, these were valued at Rs. 3,788 crores against Rs. 1,113 crores in 1995-96. During the last two years, exports have gone up by 32 per cent and 62 per cent respectively. But, there is a qualitative difference in the export-import baskets. While exports to China mainly comprise primary goods, raw material and intermediates, such as marine products, iron ore, inorganic and organic chemicals and primary and semi-finished steel, the share of electronics and light consumer goods in the import basket is rising rapidly.

Incidence of smuggling

Apart from rising imports, smuggling of goods of Chinese origin through illegal channels is also on the rise, which is evident from their widespread availability in the metro markets. We may, therefore, have to contend with the reality that illegal imports may not be insubstantial. Indian borders with Nepal, Myanmar and Bangladesh are quite porous. Various industrial associations have also voiced their concern about this situation. Traditional channels of unofficial trade have become active in the liberalised environment after the removal of quantitative restrictions. Most of the goods seized by the customs authorities are consumer goods.

In Manipur, a huge market complex has sprung up on the Myanmar side and Moreh which has abundant supplies of Chinese goods as well. These are mostly traded without payment of duty, as infrastructure for formal trade has not been put in place. Similarly, some Chinese goods are also flowing into Mizoram through the Myanmar border at Champai.

A recent study by ICRIER has confirmed that informal trade from Nepal to India takes place essentially in third country goods. These goods enter Nepal through the official channels but are pushed back to India across the border informally. Besides, Chinese goods imported unofficially through Nepal-Tibet border are transported informally to the Indo-Nepal border for sale in the Indian markets. The study also reveals that these goods comprise mainly of electronic items such as VCR, cameras, music systems and calculators and a wide range of other consumer goods including electrical goods, crystals, cosmetics, umbrellas, shoes, bags and film rolls.

In some cases of suspected dumping, anti-dumping proceedings have been initiated, though establishing the charge may not be easy in most of the cases. Also, import of 130 select items has been subjected to packaging and Bureau of Indian Standards regulations. These measures are likely to have only limited impact. But the menace of smuggling needs to be curbed effectively on priority. This requires strengthening of infrastructure at various land custom stations along the Indo- Nepal and Indo-Myanmar borders by providing additional manpower and facilities, besides stepping up enforcement and surveillance measures.

China's competitive strength

However, it cannot be construed that the Chinese goods are competitive due to smuggling, as the duty is evaded. On the contrary, the Chinese manufacturing sector has inherent competitive edge over India in producing light consumer and electronic goods. In fact, it is dominating the world market in these items. Many South Asian economies, including Vietnam, Indonesia, Thailand and Malaysia, are facing competition from China in a large range of labour intensive textiles and higher value electronic items.

Some Indian manufacturers now find it profitable to outsource from China even after payment of import duties. In a recent issue, The Economist cited the case of VIP Industries which is outsourcing from China almost one third of its production. Some other manufacturers are also in the process of having similar tie-ups with their Chinese counterparts.

The Japanese electronics industry is also reportedly shifting to China. This is attributed to the lower input costs, lower wage rates and much more disciplined, efficient and productive workforce and the scale of business operations in China.

Evidently, the sudden spurt in availability of Chinese goods at low prices has put the Indian industry in a spin. It is time to realise how far ahead China has already gone. It is a challenge which the industry will have to face. It is a wake up call for improving competitiveness at the firm level in terms of efficiencies and productivity. The situation is alarming as a recent study of 300 Indian firms revealed that their productivity growth during the Nineties has been slower than during the Eighties. Initiatives at the firm level will have to be reinforced by strengthening the infrastructure of power, trade finance, roads, ports and telecommunication and more importantly review of labour laws.

A. K. Kundra

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